Quick Takes Pro Market Technician Michael Kahn Analyzes the S&P 500:
SPX was trading at 2,067.66 at the time of analysis, down 8.99 on the day. The index has had continued trouble getting through the band of resistance and has pulled back this month. Michael points to a bearish divergence between price and volume. Waning momentum is also present in RSI, stochastics, and MACD. This could be indicative of a larger problem in the market potentially fueled by the possibility of the United Kingdom leaving the European Union as well as potential trouble in the bond market. There’s current stagnation in the short term bond rates while long-term bond rates are plummeting creating a flattening yield-curve.
Michael Kahn’s Chart of the Day: Wells Fargo & Co (WFC):
Wells Fargo & Co was trading around the $47.57 level during the time of analysis, below its 50-day moving average of $49.59. As Michael pointed out in his review of SPX, we’re currently seeing a flattened yield curve which can be expensive for banks as they borrow on the short end and lend out on the long end. With that being said, overall the trend in banking is down and WFC is no exception. The stock saw a very nice run coming into the middle of last year before it stumbled, recovered, then experienced another sell-off earlier this year. Since the sell-off, we’ve seen a wedge pattern emerge which could be viewed as a corrective recovery in a decline. That wedge pattern has now broken to the downside dragging the 50-day moving average lower. Michael wouldn’t be surprised to see WFC drop to the mid-$40’s.
TradeKing “Options Guy” Brian Overby Analyzes Wells Fargo & Co’s Volatility & Dividends:
Wells Fargo & Co’s 30-day Implied Volatility (IV) has seen a steep increase recently which may be fueled by the uncertainty in the world market, the bond market, and WFC’s upcoming earnings announcement. Even with the jump in IV, WFC is still in the middle of its 6-month range.
Wells Fargo & Co pays quarterly dividends yielding about 3.24% annually with its next earnings announcement slated for the morning of 07/15/2016.
Brian Overby Shares WFC Paper-Trading Strategies:
Brian’s first paper trade was an out-of-the-money Long Put, a bearish trade that will look to take advantage of the time between now and earnings. His second paper trade was a Back Spread with Puts, a more volatile strategy that sells one put to pay for two puts.
Brian’s First Paper Trade - Long Put
- Buy 1 Jul 15th 2016 WFC 46.00 Put
- 31 days to expiration
- Bid 0.97, Mid 0.98, Ask 0.99 for the option
- Debit is 0.98 if we get it at the mid-price, though note this is not always possible
- Maximum potential loss: 0.98
- Maximum potential gain: 45.02
- Total commission to enter this trade at TradeKing is $5.60
Brian’s Second Paper Trade - Back Spread with Puts
- Buy 2 Jul 1st 2016 WFC 47 Put- Sell 1 Jul 1st 2016 WFC 49 Put
- 17 days to expiration
- Net Bid 0.04, Mid 0.11, Ask 0.25 for the strategy
- Net credit is 0.11 if we get it at the mid-price, though note this is not always possible
- Maximum potential loss: 1.89
- Maximum potential gain: 94.11
- Total commission to enter this trade at TradeKing is $6.25
Important notes: Option prices are given as a per-contract amount. Multiply loss and gain figures by 100 shares and by the number of contracts traded to determine the amount of the full potential loss or full potential gain. No additional calculations are needed to determine commission costs.
TradeKing Options Tools used:
- Long Put
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